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How “due diligence” is helping curb the illegal timber trade in key markets

  • Due diligence in the context of the global timber trade is, essentially, a principle that says companies must have valid paperwork for the wood they’re buying, going all the way back to the point of harvest, and be able to show that they’re assessing and mitigating the risk of illegal wood entering their supply chains.
  • According to Washington, D.C.-based NGO Forest Trends, this principle is being implemented in key markets such as the EU, Australia, and the US via a variety of laws that aim to prohibit the trade in illegal timber, including the EU Timber Regulation (EUTR), the US Lacey Act, and Australia’s Illegal Logging Prohibition Act (ILPA).
  • A total of 495 company inspections and 300 corrective actions were reported by EU and Australian enforcement officials in the past half year, which Forest Trends said shows that countries are increasingly stepping up enforcement against companies that fail to comply with the requirements of the law.

There is a new global norm emerging for tackling the trade in illegal wood, and it’s centered around due diligence, according to experts.

Due diligence in the context of the global timber trade is, essentially, a principle that says companies must have valid paperwork for the wood they’re buying, going all the way back to the point of harvest, and be able to show that they’re assessing and mitigating the risk of illegal wood entering their supply chains.

According to Washington, D.C.-based NGO Forest Trends, this principle is being implemented in key markets such as the EU, Australia, and the US via a variety of laws that aim to prohibit the trade in illegal timber, including the EU Timber Regulation (EUTR), the US Lacey Act, and Australia’s Illegal Logging Prohibition Act (ILPA).

Forest Trends surveyed fourteen EU member states, three US agencies responsible for enforcing the Lacey Act, and the Department of Agriculture and Water Resources in Australia, the enforcement body for the ILPA, and found a marked uptick in actions against companies that have not been practicing due diligence.

For instance, a total of 495 company inspections were reported by EU and Australian enforcement officials in the past half year, Forest Trends said. A total of 955 due diligence systems were reportedly put under review and 300 corrective action requirements were issued in that time period, while there were three injunctions and 47 sanctions brought against companies.

Stacks of illegally logged timber on the island of Borneo. Photo by Rhett Butler.

That represents an average of 33 inspections and 64 reviews per country during the 6-month reporting period, Forest Trends noted. Enforcement of the EUTR, which came into effect in 2013, has been criticized as weak by some observers, but Forest Trends said that these numbers show that countries are increasingly stepping up enforcement against companies that fail to comply with the requirements of the law.

Forest Trends’ Jade Saunders wrote in a blog post in March about two cases, in Sweden and the Netherlands, that she said “mark the start of what is likely to be an increase in actions taken by enforcement officials and an exponential change in the way that Europeans import timber products from countries with significant crime and corruption in their forest and tax systems.”

The EUTR and supporting legislation make it an offense to bring illegal timber into European markets, and all European companies regulated by the EUTR are required to have a documented system of due diligence to ensure they are not importing timber and forest products made from wood that was harvested outside of the law.

Source countries directly implicated in the EU and Australian enforcement actions include Brazil, Burkina Faso, Cameroon, Democratic Republic of Congo, Gabon, Myanmar, Peru, Republic of Congo, Russia, and Ukraine. Forest Trends found that 30 percent of the actions affected supply chains for products processed in China, Thailand, Malaysia, and Vietnam.

Importers of furniture alone were issued 62 corrective action requirements, injunctions, or sanctions.

The actions being taken by EU countries are primarily civil enforcement measures that aim to stop the marketing of potentially illegal wood, Saunders explained. EU member states use the penalty regime of their respective national enforcement agencies, but in most cases authorities also have the power to require specific improvements to a company’s due diligence system and to issue administrative and criminal sanctions to those that do not comply.

Most EU cases to date have not — or at least, have not yet — risen to the level of criminal prosecutions. This is a major difference between how the EUTR is being enforced and the actions taken in the US under the Lacey Act, most notably the Lumber Liquidators case that was resolved last year.

But even in the Lumber Liquidators case, which resulted in a $13 million penalty being levied against the company, due diligence has been recognized as a significant part of the solution. In another blog post, Saunders wrote that, “beyond the satisfying narrative of a corporate ‘bad apple’ brought to justice, the case also represents a benchmark in new standards of behavior emerging in the forest sector. This is particularly true of Lumber Liquidators’ new Environmental Compliance Plan, a condition of their settlement.”

The compliance plan negotiated between Lumber Liquidators and the US government includes a requirement that the company’s risk assessment take into account a wide range of factors, including source countries’ corruption ratings, specific regulatory requirements for all raw materials (such as logging or export bans), and the potential for species substitution.

“It goes further,” Saunders added, “mandating an ‘in-person audit at the supplier’s place of business, completed by a member of the Lacey (compliance) team, third-party certification body, or third-party auditor with specialized industry expertise.”

Saunders and her colleagues at Forest Trends argue that, taken together, these actions show that we could be witnessing the birth of a new era in the global timber trade.

“What could be considered something of a ‘soft start’ in the different regulated markets is nearing an end,” Saunders wrote, “and large companies and their investors are duly put on notice that robust board-level risk mitigation is no longer a matter of brand protection or an aspirational ‘green’ extra — it is a prerequisite of trading in the sector.”

“These actions send an unequivocal message that key importer countries are saying ‘no’ to illegal wood,” Kerstin Canby, Director of the Forest Policy, Trade, and Finance program at Forest Trends, said in a statement. “As officials in Europe, North America, and Australia continue to enforce the laws on their books, we look to other governments to join the growing united front that’s clamping down on illegal timber being extracted from endangered forest areas around the world.”